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215 comments on DrumBeat: June 12, 2006

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wstephens on June 12, 2006 - 9:25am Permalink | Subthread | Parent | Comments top
I think that the first steps up the price ladder will destroy demand in the smaller economies -- i.e. emerging markets or small currency markets.  Perhaps the next $10 or $20 dollars in oil price will do that, but who knows?

Once the small economies are out of the market, then the bidding will move up to the US/Euro/Yen currency blocks.  This is when the real spikes could occur.  My guess is that the Yen could fail first -- they import energy and food, and have been the biggest money printers in recent years.  But again, who knows?  

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Magnus Redin on June 12, 2006 - 9:33am Permalink | Subthread | Parent | Comments top
Why would a small currency market have a harder time to buy oil? My first guess is that it should depend on the competetiveness of the industry in the small currency market and the industry and infrastructure efficiency. Is there something inherently bad with having a small currency such as SEK?
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wstephens on June 12, 2006 - 9:49am Permalink | Subthread | Parent | Comments top
"Infrastructure efficiency" was what I was thinking, perhaps I over-generalized using EM.  For instance, I read somewhere that the average speed of a truck in India was something like 25 mph.
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sonofacoporatemonkeyboy on June 12, 2006 - 2:59pm Permalink | Subthread | Parent | Comments top
I think when gas prices hit $6/gallon the US should adopt the metric system.  It might not be so overwelming.  $1.60/litre is not so frightening and the controversy will take away from the real issue.
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tate423 on June 12, 2006 - 3:13pm Permalink | Subthread | Parent | Comments top
I like the trickery...u know it would work too that's the sad part.
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Magnus Redin on June 13, 2006 - 8:22am Permalink | Subthread | Parent | Comments top
That is almost exactly the Swedish petrol price with taxes.
People complain about it but they do not revolt.

Go for it, every killing of a "funny unit" is a good kill.

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Richard on June 12, 2006 - 8:20pm Permalink | Subthread | Parent | Comments top
The economic activities that are 'oil-inefficient' will be the first to go or at least to get a hard time. Driving a hummer to work is not very efficient for example ;-)

Currency will have something to do with it, because even if you are 'energy efficient', but the surrounding economy is fragile, you still will be competed out of the market because the economy surrounding you will crumble (unless you are completely export oriented ofcoarse)

However, for stable economies, even small ones, it won't matter that much.

Talking about the yen, people tend to forget that the Japanese economy is about half the size of the US. That is a mighty large piece. And that they are running in the black, for years and years now. However, the japanese are very dependent on export. If export falls, then so does the economy. In case of a dollar / euro / sterling / etc in trouble, the asian exporting countries will immediately feel the pain, not only the yen.

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wstephens on June 13, 2006 - 11:54am Permalink | Subthread | Parent | Comments top
Japanese economy is about half the size of the US
Yet the Japanese monetary base is larger than the US at current exchange rates. And they import lots of energy. And food. And have a demographic problem. So I agree, they are very dependent on exports.
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energyblog on June 13, 2006 - 1:07am Permalink | Subthread | Parent | Comments top
I'd argue that it's more likely when/if oil is traded in Euros, this will crash the US dollar since banks would have to sell it for Euros, banks would find that they have to foreclose on houses for the cash, which in turn ends the US economy, and send us into the post industrial age. weee

peakoil is the end of the industrial economy, not of countries or people. Actually, humans are going to make a big comeback, if the Japanese 250 years of self-imposed isolation in The Edo Period (1603-1867) is anything to go by.  This was a human powered economy and a useful lesson. Besides, now they at least have the cool trains that we all lack ;)

I wouldn't worry about the YEN or Japan.  It will surely have its crisis as will any country, but with the USA in the trillions of dollars in debt and burdened by it's SUV suburban society and highways, it's the US that will likely fall the fastest.  Without cheap gas nobody can spend or go anywhere.  Then they'll find out that there's also nowhere to go to.

I think a hummer will make a nice planter.

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Richard on June 13, 2006 - 1:41am Permalink | Subthread | Parent | Comments top
Energy-blog,

I'd argue that it's more likely when/if oil is traded in Euros, this will crash the US dollar since banks would have to sell it for Euros, banks would find that they have to foreclose on houses for the cash, which in turn ends the US economy, and send us into the post industrial age. weee

Which college did you go to? You seem to know a lot about it.

My Toyota is also priced in Yens, but I pay in Euro's. Is the bank now going to sell my house or are my children going hungry? Please tell me, I need to know. Shall I move in with my parents or is the bank going to sell their house too? (They eat a lot of Australian Beef, priced in A$, you know)

Can I still fly in a Boeing, or only Airbus?

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energyblog on June 13, 2006 - 4:54am Permalink | Subthread | Parent | Comments top
naw, your house is fine.  the gold you buried in the backyard will protect your country from hyperinflation or is it hyperdeflation?  you have gold don't you?   or maybe that's another peak, peak gold!

Your Toyota pulled by oxen will make a nice tractor, if you can find the oxen...

Since the US dollar is propped up by sales of all oil transactions being done in US Dollars, (OPEC) if that were to change (Charez is chair this year) then the economic bubble of the US would come into question.  I don't think this likely as everyone would lose their #1 customer but it points to the..y'know.. reality and fragility of the US state of debt and how the world holds it up. ( I'm going to guess that each country's trade surplus and deficit will also play a role in a similar way. )

Banks around the world to facilitate oil transactions need to have US dollars.  The US dollar is the end transaction, so it's a means of keeping the country afloat in debt without penalty.  A sudden selloff of dollars in exchange for euros/rubles/loonies/marbles anything, would lower the US dollar, thereby making oil (and everything else imported into the US) more expensive to buy and gas as well etc.  

From what I understand money is loaned into existense plus interest by the banks and if paid off with no new loans coming online, money is essentially retracted from the economy.  I think this means recession if a large enough housing bubble bursts?

Everyone but the USA seems to try to put their house in order.  Here in Canada we cut our debt a lot in the 90's by cutting a lot of social programs (not medicare of course) however the the US spent more, Dem or Rep.  This has always left me scratching my head.

When exactly are Americans going to pay off their debts anyway?  I think many in the face of peak oil will in fact spend even more if they knew there wasn't an industrial pizza shopping mall later on.  Given the debt situation who can blame them?

trillion dollar Market Correction = Second Depression

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wstephens on June 13, 2006 - 6:09am Permalink | Subthread | Parent | Comments top
making oil (and everything else imported into the US) more expensive to buy
And making the US grain exports more valuable to sell.

I can surely put off buying that plasma TV and wine refrigerator until next year, but will the world put off eating until next year?

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tate423 on June 13, 2006 - 8:22am Permalink | Subthread | Parent | Comments top
We import far more than we import, so who cares if our crops are moderatly more expensive. Local farmers in their local economies seize an opportunity to compete due to the high cost of US crops.  Don't forget we import far more than we export, so on net as a country we are still losers with higher priced crops but even higher cost EVERYTHING ELSE.  
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wstephens on June 13, 2006 - 9:08am Permalink | Subthread | Parent | Comments top
Imports would have to fall by 35% to get trade in balance.
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tate423 on June 13, 2006 - 11:02am Permalink | Subthread | Parent | Comments top
Agreed, but due to either inflation or deflation there will be consequences to everything we pay. If everything costs more then imports will crimp even more spending due to higher prices.  In deflation our crops are worth even less, while import prices remain higher still. I think I'm firmly on the fence now about whether we see inflation or deflation, but I still lean towards inflation.

I'm thinking more macro than plasma tv's for my living room.  Those plasma tv's are going to get more expensive or remain flat, best case.  The cost efficiencies appear to have been rung out of production.  I've found 42' plasmas for under $4k.  Don't know about the quality, but DLP is far better anyway and that is OWNED by Texas Instruments, so they are at the helm when it comes to producing those.

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wstephens on June 13, 2006 - 12:25pm Permalink | Subthread | Parent | Comments top
I'm trying to put forward that regardless of the price of the imports in the "consumer goods" categories (e.g. "leather products" $8B ytd deficit, "appliances and electrical" $9B, "computers and electronics" $45B, "transportation equipment" $32B, "apparel" $20B, etc.) that we'll buy much less of these things. I think that the prices of these things will fall, and you think that the prices of these things will rise. Neither of us may be clearly correct in the short run.

However, I think that our exports of grains will remain steady or rise, but definitely fall much less than those "consumer goods". Further, risky-asset prices will fall, and "riskless" asset prices will rise (lower yield).

All of this seems to fit a "deflation" scare description better than an "inflation" scare to me.

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AlanfromBigEasy on June 13, 2006 - 12:58pm Permalink | Subthread | Parent | Comments top
Would you consider hydroelectric producers, either utilities or merchant, as "low risk" ?

Different nations:

Canada
Brazil
Austria
Switzerland
New Zealand

Your thoughts ?

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wstephens on June 13, 2006 - 1:28pm Permalink | Subthread | Parent | Comments top
It's entirely possible that all "non-riskless" assets, even utilities, go down in the current (#1) seasonal weakness (combined with #2 cyclical weakness), before any (#3) secular weakness hits the markets. If we get all three hits (only #1 and #2 are expected at this stage) then it's tough sledding for a while. #1 and #2 will last only thru October. #3 is when the Fed comes back in play with the downkick in interest rates.
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